Korea Bonds Advance Before Global Manufacturing Data

South Korea’s won weakened the most
in more than two months and government bonds advanced as data
from Japan and China heightened concern the global economic
slowdown is worsening.

A preliminary reading for a Chinese manufacturing survey
pointed to an 11th month of contraction and Japanese exports
fell in August for a third month, reports released today showed.
The Kospi (KOSPI) index of shares fell the most in two weeks as most
currencies in Asia weakened against the dollar. South Korean
consumer inflation may ease to less than 2.7 percent this year,
Bank of Korea board member Lim Seung Tae said today, reiterating
a projection made by the central bank in July.

“With shares and other currencies falling on economic
concerns, we saw a lot of overseas investors covering their
short positions on the dollar,” said Lee Jin Ill, a Seoul-based
currency trader at Hana Bank. “Reports on tensions between
China and Japan also contributed to worsening sentiment on the
won, but I don’t expect this correction to last for long.” A
short position is a bet an asset will decline in value.

The won dropped 0.8 percent to 1,123.15 per dollar at the
close in Seoul, the biggest decline since July 12, according to
data compiled by Bloomberg. The currency touched 1,114.65
yesterday, near a six-month high. One-month implied volatility,
a measure of exchange-rate swings used to price options, rose 15
basis points to 6.25 percent.

China should make all possible preparations in regard to
its territorial dispute with Japan over islands in the East
China Sea, including for military conflict and “even war,”
Wang Xiaoxuan, director of the Naval Research Institute of the
People’s Liberation Army, wrote in the China Daily today.

“With monthly economy data due in the coming weeks and
expectations for a rate-cut next month rising as the slowdown
deepens, the recent losses in bonds are being reversed,” said
Lee Gil Won, a Seoul-based bond trader for Shinhan Bank.